Trade and Consequences

Trade and Consequences

The globalization of trade is
having some unexpected-and unwelcome-effects.

Walk into any Wal-Mart,
Target, or Sears store in the United States, pick out a selection of goods from
the shelves, and look at the manufacturer's label. The portable DVD player for
your teenage daughter costs less than $100 and is made in Singapore. The
silk-screen T-shirt with the cartoon characters for your 7-year old son is less
than $15 and labeled "Made in the Philippines." The new wrenches for your
garage toolkit cost half of their American counterparts; they're made in China,
as is the new microwave for your home office. The sleek LCD monitor for your
family's computer comes from Korea. In fact, chances are that more than 75
percent of the small manufactured goods in your shopping cart were made in Asia
and hauled by container ship across the Pacific.

It is not news that U.S. stores
sell many imported products. The United States has always been a trading nation
and its role in international trade has grown steadily during the last several
decades. But it has been 30 years since the United States exported more than it
imported. In 2004, when U.S. international trade totaled $2.9 trillion, imports
exceeded exports by more than $620 billion.

The largest contributors to the
U.S. trade deficit are imported oil and manufactured goods. Although oil
represents the largest dollar fraction of U.S. foreign trade, the growing flood
of imported manufactured goods is having equally profound effects. As the
United States shifted from a manufacturing-led to a service-oriented economy,
mainland Asian economies filled the gap. Lower Asian labor costs and less
stringent environmental regulations translated into lower production costs,
more than counter-balancing the expense of international marine freight
shipping. (China is now the largest source of manufactured imports in the
United States, except for automobiles, and is the second biggest U.S. trading
partner.)

These new Asian imports, along with
goods arriving from other countries, have resulted in a flood of marine freight
that is swamping U.S. ports and overwhelming nearby communities.

Most manufactured imports arrive on
container ships, and the resulting growth in marine container freight is
creating grave new technological, environmental, economic, and national
security challenges. These challenges are especially acute in the United States
but have implications for many nations caught up in the economic web of trade.

Sea Changes

Containers are rectangular
aluminum or steel boxes, typically 6-12 meters in length. Invented in 1956,
containers and the ships built to carry them have revolutionized marine
freight. It's no exaggeration to say that container ships are taking over the world's
general cargo fleet. In 2003 they carried 75 percent of general cargo along a
virtual marine highway.

The pressure to reduce marine
freight costs is driving technological evolution in the international shipping
industry. One response has been to minimize both fuel use and manpower per
ton-mile by steadily increasing the carrying capacity of ocean-going container
ships. A second approach has been to modernize port management and dockside
cargo handling in order to increase cargo throughput and decrease ships' idle
"dwell time" in ports.

Container ship capacity has
ballooned dramatically in the last 40 years. Ship size is measured by the
number of standard containers, called 20-foot equivalent units (TEU), a ship
can carry on its decks and in its holds. Third-generation container ships,
built in the mid-1980s, carry about 4,000 TEU. These so-called PanaMax ships
are the largest freighters that can pass through the Panama Canal. By
comparison, fourth- and fifth-generation ships with capacities between 4,200
and 7,600 TEU are too big to use the Panama Canal and must travel other routes.
Although the Port of Long Beach can dock ships up to 8,000 TEU, most ships in
this class are too large to dock at U.S. ports. Beyond these "MegaShips,"
several containerized cargo vessels being designed today have capacities
approaching 15,000 TEU. When built, they will be the largest cargo ships able
to transit the Suez Canal. The Dynamar Consultancy in Rotterdam, the
Netherlands, has predicted that ships of 18,000 TEU will be built by 2010.
These ships are designed to haul containerized cargo at costs of only $0.07 per
ton-mile, compared to $0.10 per ton-mile achieved by today's PanaMax ships.
These ships will be barely able to float through the Straits of Malacca and will
be unable to dock using existing facilities at most of the world's historically
important ports.

MegaShips are beginning to dominate
both shipbuilders' order books and the current fleet of container ships at sea.
The aggregate global capacity of containerized MegaShips grew by 44 percent
annually from 2001 through 2005. Twenty container ships with capacities
exceeding 7,000 TEU were added to the global fleet in 2004 (compared to seven
such ships added in 2003). More than 100 of the 167 new vessels on shipbuilders'
order books in 2005 are MegaShips.

The arrival of PanaMax and larger
container ships at U.S. and other international ports creates a need for
dramatic changes in dockside cargo-handling and transfer facilities. Before
container ships, virtually all freight except bulk cargo was packed on pallets
and skids, then off-loaded by teams of longshoremen using shipboard cranes and
hand-held cargo hooks. This is no longer the case.

Today's ports are not just points
of entry but function as a "mini-land bridge," integrated with specialized
facilities to transfer containers to railroad cars or trucks for overland
shipment. Thus, a container of DVD players and other electronic goods from
China may move across the Pacific on a container ship, land at Los Angeles, and
transfer to a truck for a trip to Fresno or to a rail car that will haul it
across the continent to New York City. At the Port of New York, the container
might be put on a truck for delivery to a Connecticut Wal-Mart or loaded back
onto another container ship bound for Europe. Efficiently handling the enormous
cargo loads that arrive on MegaShips requires sophisticated cargo-tracking
information systems as well as automated loading and transfer facilities.

U.S. ports, however, are strapped
with aging infrastructure, and even the current demand for imported freight
pushes most of them well beyond their design capacity. Yet the goods just keep
on coming. Demand for cargo throughput is projected to double at all major U.S.
international ports between 2010 and 2020. Demand at the San Pedro Harbor ports
of Los Angeles and Long Beach, California, for instance, is projected to reach
twice the current volume by 2015.

As a result of the continuing
mismatch between existing infrastructure and growing demand for off-loading
facilities, many U.S. ports frequently experience dockside gridlock. More than
5,000 ships transited the Port of Los Angeles in 2004, a facility designed for
about 1,800. On October 12, 2004, a record 94 ships passed through, almost
twice the target maximum of 50 ships per day. One day in September 2004, more
than 60 ships sat off-shore waiting to dock. All docks were occupied and there
was a shortage of longshoremen. Local railroads were groaning under their loads
and trucking firms struggled to find tractors and drivers. Some ships sat at
anchor as long as 10 days. Throughout the year, local authorities diverted
nearly 120 ships carrying cargo worth over $4 billion to other ports.

Aging dockside infrastructure,
shortages of skilled labor, and chokepoints along rail and truck routes sap the
productivity of U.S. ports. But not only do these problems slow the movement of
goods to store shelves, they radiate out from the docks, punishing portside
communities with noise, air pollution, and congestion. The I-710 freeway, for
example, is the primary artery for freight leaving the ports of Los Angeles and
Long Beach. Average daily traffic volume on I-710 exceeds 240,000 vehicles,
including more than 34,000 heavy trucks leaving the ports. The current daily
volume exceeds the design capacity of the freeway, frequently leading to
extreme traffic congestion and serious traffic accidents. Nonetheless, heavy
truck traffic exiting the ports is projected to grow steadily, exceeding 90,000
vehicles per day by 2025. Many experts forecast that increasing truck traffic
will cause I-710 traffic to grind to a halt every morning, with traffic stalled
all the way from the San Pedro ports to the I-5 interchange, 30 kilometers (18
miles) away. A spokesman for the Los Angeles Economic Development Corporation
told the Los Angeles Times in October
2004, "The U.S. cargo system has reached its maximum capacity and there has
been a steady growth in imports, while there is no coherent expansion plan for
transportation."

Hidden Costs

The flow of containerized
freight through U.S. ports brings cheap goods into the U.S. economy. However,
there are already significant negative social and environmental impacts from
marine freight traffic, and these fall disproportionately on the mainly
low-income residents of portside communities, who must endure the congestion,
noise, and pollution of freight-related activities.

Each day, congestion on U.S. docks
creates long queues of waiting trucks. Their engines idle for extended periods
before they inch out of harbor areas, noisily traversing the neighborhood
streets of portside communities where they compete for space with children at
play.

But noise and crowding are not the
only problems visited on portside communities. Freight-related emissions (from
both trucks and ships) are a major source of local exposure to carbon monoxide,
nitrogen dioxide, ozone, and other "criteria pollutants" and carcinogenic
particulates. The California Air Resources Board says that port-related
activities will be the dominant source of smog-causing nitrogen oxide (NOX)
emissions in the South Coast Air Basin by 2020, out-distancing traditional Los
Angeles-area culprits like gasoline-fueled cars and industrial facilities.

Similar trends are projected for
the small particulate matter emitted from both ships and trucks in diesel
engine exhaust. PM10 particulates, with average diameters of less
than 10 microns, are easily inhaled. The current average PM10 daily
emissions of the Port of Los Angeles are substantially greater than the average
emissions from a typical U.S. refinery or the daily particulate emissions from
500,000 U.S. cars. The U.S. Environmental Protection Agency (USEPA) estimates
that by 2030 marine diesels will account for 60 percent of nationwide emissions
of the smallest and most dangerous particulates, called PM2.5.

California officials say that
diesel emissions account for 80 percent of overall cancer risks from exposure
to toxic air pollutants. A recent epidemiological study of 54,000 railroad
workers exposed to diesel exhaust in their work environment found that
long-term exposure to diesel particulates led to a significant increase in the
incidence of death from lung cancers. Internal USEPA memos confirm that
extended exposure to diesel exhaust is also likely to increase incidence of
chronic, non-cancer health effects in vulnerable populations, especially
children and seniors.

Murkier and more dangerous air is
not the only environmental damage inflicted by marine trade. As container ships
and other marine cargo vessels grow in size, they require ever-larger
quantities of ballast water to stay upright. The huge ballast tanks, which are
filled with seawater, create inviting habitats for all sorts of aquatic
hitchhikers. Invasive species carried in ballast water can be as simple as
single-celled plankton, which form the base of the aquatic food web. Once
established, foreign plankton species may out-compete local counterparts due to
lack of native predators, and may cause organisms further up the food chain to starve
for lack of their own favorite "delicacies."

Larger species travel in the tanks
as well. The European green crab, for instance, has been found in various
locations along the U.S. Atlantic and Pacific coasts. Green crabs devour native
mollusks, crustaceans, and algae. They appear to be undermining U.S. scallop
fisheries as well as the Dungeness crab fishery on the Pacific Coast. The
Eurasian Ruffie, a freshwater perch first inadvertently imported in some
freighter's ballast water in the 1970s, has successfully colonized the far
western edge of Lake Superior. This aggressive freshwater fish spawns up to six
times per year, out-competes native fish species, and has become more abundant
than any other fish in Lake Superior. The loss to local fisheries from the
Eurasian Ruffie was estimated at $120 million in 1994 and continues to grow.

Perhaps the most destructive
species to escape from ships' ballast water has been the Zebra mussel. These
hardy and prolific bivalves can form colonies incorporating almost 700,000
mollusks per square meter. They clog the cooling water inlets of electric power
plants and have caused damages in excess of $5 billion per year in the United
States.

Technological defenses against such
"free riders" on the gravy train of international trade are very hard to find.
There are no "silver bullets" that can safely and cost-effectively treat
ballast water, eliminating hitchhikers on all ships hauling cargo today.
Although expensive, some treatment options-ultraviolet light or heat, filtration,
biocides, and deoxygenation-may soon be ready for full-scale commercial testing
against specific types of invasive species. But U.S. policy decisions about how
to identify, control, and regulate these threats have not yet been completed,
and no political consensus exists on who should pay for such measures. Perhaps
any serious efforts to resolve such issues must wait until a foreign invader,
like the voracious Chinese snakehead fish, crawls out of the Potomac Tidal
Basin and bites a congressman on the ankle.

In-sea-curity

Vessels that haul 7,000 to
15,000 steel containers into a port at a time carry major risks besides
invasive animal or plant species. The containers can provide nearly unlimited
opportunities for terrorists and smugglers to hide in plain sight. Any standard
cargo container is big enough to smuggle more than a dozen people or conceal a
dangerous quantity of weapons, drugs, or explosives.

But it is the sheer volume of
containers that creates the most serious risks. Because of the number of
containers now passing through U.S. ports of entry, it is virtually impossible
for all of them to be opened and inspected without seriously disrupting trade.
U.S. ports today are only able to inspect a small sample of the containers.
Indeed, a report released by ABC News on the first anniversary of the 9/11
attacks demonstrated how easy it would be to ship radioactive material into the
United States undetected. Having borrowed a cylinder of depleted uranium from
the Natural Resources Defense Council, the ABC News crew proceeded to package
the mildly radioactive material in a lead-lined, steel canister and hide it
inside a container full of furniture. The container was off-loaded at the Port
of New York/New Jersey, placed on a truck, and delivered without interference
to the ABC News offices in midtown Manhattan.

If the cylinder of depleted uranium
used in this test had contained an equal volume of more highly enriched
uranium, its contents would have been sufficient to make a simple radiological
dispersal device (a "dirty bomb"). If it had contained weapons-grade uranium,
only slightly more shielding would have been required to keep the much more
dangerous material from being detected. The situation at the Port of New
York/New Jersey has not improved substantially since September 2002, and the
ease with which the operation was executed provides a terrifying reminder of
the continuing vulnerability of all U.S. ports, particularly as the volume of
container throughput continues to grow. Dealing with these security risks will
require the development of nondestructive testing and imaging methods for
rapidly examining the contents of each container before it leaves its port of
entry.

Containing the Problem

The problems associated with
marine freight landing at U.S. ports are profound and multi-dimensional. U.S.
ports are outmoded, inefficient, under-capitalized, and already straining under
loads that only promise to grow heavier.

Contrast this situation with major
Asian and European ports, which are bigger and more agile than their U.S.
counterparts. Investments in information technology and advanced logistics
management capability have made them more efficient per unit time and per acre
of wharf space. As long as 10 years ago, several Asian ports achieved container
throughputs of 8,800 TEU/acre/year. European ports moved approximately 3,000
TEU/acre/year. In the last 10 years, the throughput capacity of the most
efficient Asian and European ports has increased to over 30,000 and 5,000
TEU/acre/year, respectively. By contrast, the most efficient U.S. ports manage
to move only around 5,000 TEU/acre/year today, and U.S. ports continue to
under-invest in new technology, giving both Asian and European ports a
comparative advantage for years to come.

The Main Container Terminal in Hong
Kong is a good example of state-of-the-art port technology. It was designed
explicitly to handle frequent off-loadings of large container ships in the most
time-efficient and cost-effective manner, deploying a cutting-edge suite of
information-intensive container transfer technologies.

Only a handful of U.S. ports are
adequately configured even to dock the generation of PanaMax vessels. No U.S.
port is currently able to dock and efficiently off-load 15,000-TEU machines or
future generations of even larger vessels. Substantial dredging of harbors, the
creation of new slips and docks, or the construction of off-shore unloading
facilities will be needed to handle the coming generations of container ships
now headed toward U.S. ports.

The challenge of operating
world-class ports in the United States is not just a problem of small docks or
shallow channels. It is fundamentally a systems problem, with demanding
elements at every point on the goods movement chain from the dockside arrival
of freight to the final point of land-side delivery. These problems will only
grow as the volume of marine freight expands over the next decade. If they are
ignored, the ever-widening stream of marine freight may have catastrophic
consequences for the U.S. economy, for portside communities, and for natural
ecosystems.

There is no simple solution for
dealing with the economic, social, technological, environmental, and national
security challenges arising from the flow of marine freight at U.S. ports.
Nothing significant will likely be done until the general public becomes aware
of the challenges resulting from our growing demand for imports and understands
the trade-offs inherent in increasing reliance on "cheap" goods. Ultimately, a
comprehensive, integrated national strategy may be needed to support the smooth
and economically efficient operation of the U.S. goods movement system and to
avoid the negative impacts of our expanding marine freight trade. Such a
strategy can only be implemented through a broadly based, national conversation
that invites input from all key stakeholder groups, including importers,
shipping companies, port operators, investors, state and local governments,
environmentalists, workers, and community groups representing the interests of
civil society.

The expanding tide of marine
freight is bearing down on the United States like a PanaMax container ship. It
is time to look squarely at the problem and recognize that maintaining a sound
goods movement system demands a critical investment in national infrastructure.